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ECONOMIC TRACTS. No. X. 



OF WORK AND WEALTH 



A SUMMARY OF ECONOMICS 



R. R. BOWKER 




NEW YORK 
THE SOCIETY FOR POLITICAL EDUCATION 

4 MORTON STREET 
1883 









PREFATORY NOTE. 



This summary is re-worked from a chapter in a volume, not yet com- 
pleted, on " The Arts of Life." It is intended to give a comprehensive 
view of the principles of Economics, in as simple a style as the necessary 
compression permits, denning economic terms chiefly by their use in the 
context, and not attempting detailed illustration. I hope later to develop 
this skeleton into a practical manual of Economics, more simple and easy 
because less compressed, in which principles shall be illustrated from 
American facts. 

It has not been practicable to give detailed credit to the economists 
upon whose thought I have freely drawn, as notably from Walker, from 
Jevons, and from Henry George, whose kindling fervor one may acknowl- 
edge without accepting the extreme conclusions he draws from his premises. 
For some suggestions in this summary, I cannot hold any one but myself 
responsible, as, for instance, the analysis of taxes according as they belong 
to preventive or to constructive government, the use of the word Director, 
and the analogies between land and 'brains." 

I dedicate this attempt to serve the cause of Political Education to the 
honored memory of Richard L. Dugdale, first Secretary of the Society, whose 
efficient enthusiam for the work can never be forgotten by his sorrowing 
associates. 

R. R. Bowker. 

i November, 1883. 



Copyright, 1883, by B. B. Bowker. 



OF WORK AND WEALTH. 



I.— THE STUDY OF ECONOMICS. 

The first every-day duty of a man is to earn his own living. This 
he must do by Work, which obtains from Nature the physical basis of 
life and by saving and exchange produces Wealth. With this business 
of Work and Wealth, Economics has to do. Some .writers define it 
as the science of Production, others as the science of Wealth, others as 
the science of Exchange. It may be called also the science of Gain, 
because the purpose and result of all production and exchange, the 
end of economic man, is gain. The name Economics (from okoa, 
the house, and vepeiv, to manage or give law) means household 
management, or in the wider sense, the management of the Common- 
wealth, as the good old phrase calls the State. For the State is in- 
deed founded on homes ; it is the family which is the economic unit. 
A man takes to himself a wife, who may or may not earn, and begets 
children; it is what all in the home earn, less what all spend, that 
leaves wealth; these "hostages to fortune," in Bacon's phrase, 
anchor a man's economic position in the home. It is in the wider 
sense, as relating to the Commonwealth, that Economics has usually 
been known as Political Economy. 

The mastery of the principles of Economics is important because 
it is no inconsiderable part of the mastery of life. The ignorant 
man is everywhere at a disadvantage, and here most of all. Ignor- 
ance must always buy dear ; it pays high prices for goods and for 
experience. It favors " cheap money" which costs dear in the long 
run, because it does not see that it is things which are exchanged, 
after all, and that money is not cheap when it will buy but little ; it 



4 OF WORK AND WEALTH. 

favors usury laws because it does not see that under them interest 
is often higher to cover the risk of evading laws j it forever over- 
looks "that which is not seen," to be cheated by "that which 
is seen." An ignorant man has no foundation from which, by 
reliance on his own knowledge, he can resist the sheep-like 
tendency of the run of men; he makes the common mistake 
of buying on a rising and selling on a falling market, and so 
helps on expansion or panic and brings ruin to himself. While 
knowledge, in Economics as everywhere, interprets for the educated 
man the experience of the past into foresight for the future. He is 
the better business man, fore-warned, fore-armed, who can bring into 
his calculations that wave-line in economic development, which makes 
the " ups and downs" of business, — "the established cycle," says 
Lord Overstone, " of quiescence, next improvement, prosperity, ex- 
citement, overtrading, convulsion, pressure, stagnation, distress, end- 
ing again in quiescence." He is the wiser farmer who recognizes the 
same law in sowing his crops, and avoids the low prices which com- 
monly follow a season of high prices, say for potatoes, because " every- 
body " next year plants potatoes and so brings down the price. And 
not only for his own sake, but for the sake of good government, 
ought a man to study Economics. Public opinion is after all 
the great court whose decisions rule, and public opinion is only the 
aggregated opinion of individual men. 

The wealth of nations, with which, as a state craft, Economics 
deals, is of two orders, Wealth Potential and Wealth Produced. 
Potential Wealth is, in truth, "abundance of life": to a nation, 
the amount of living vigor, present and prospective, applicable, 
within the limits of over-population, to produce work ; as to each man 
health, length of years, natural capacity for production increased 
by skill. Every " able-bodied " immigrant is thus said to be worth 
to the United States, whose land still invites labor, a thousand dol- 
lars. It is this wealth which Ruskin regards, fulminating against 
economists for their narrow definitions, and Adam Smith himself in_ 
eluded it in reckoning the capital of a country. It is this with which 
the statesman largely concerns himself in his economic direction of 



OB WORK AND WEALTH. 5 

the State. But this wealth cannot be exchanged ; like all higher 
things, it is beyond value and literally "without price." Produced 
Wealth alone has value in the economic sense of power-in-exchange, 
and it is this with which economists, as such, primarily deal. When 
then we speak of Wealth, we mean usually the fruits of Work, not the 
possibilities of it ; Wealth is labor stored by combination with ma- 
terials. 

There are two great schools of economists — the English or Man- 
chester school, which confines itself to the analytic method, isolates 
11 the economic man," and insists upon the abstract science ; crying 
"hands off," laissez faire / (let be!) to any "interference" with 
general law ; and the German school, which follows the historical 
method, deals with the historic man, and, may be said to emphasize 
the art of Economics. The one lays down what must be, the other 
asks what has been: so far as the analysis of the one is cor- 
rect, the research of the other confirms its conclusions : both meet 
in what is. Each has its field ; the method of the one corrects the 
method of the other. It may be sound economy to let well enough 
alone, but not to let ill alone: thus despite the opposition 
of the Manchester school to factory legislation, the English factory 
acts assume a guardianship over employes likely to be ill-used. The 
Duke of Argyle, in his " Reign of Law," says : " During the present 
century two great discoveries have been made in the science of 
government : the one is the immense advantage of abolishing restric- 
tions upon trade \ the other is the absolute necessity of imposing re- 
strictions upon [the abuse of] labor." 

The principles of Economics have in fact various applications ac- 
cording to the complex nature of man, and the actualities of his 
present circumstances. The widest knowledge that can be got from 
past facts and from comparison of present ones, is necessary to de- 
termine the true application of economic laws. The growth of the 
world does not shake truths, but it gives truth new faces. In fact, 
as the world attains unity, as nations communicate and men move 
more freely, as transportation is more easy, the laws of Economics have 
freeer play. Emigration is a tide of labor, obeying economic gravita- 



6 OF WORK AND WEALTH. 

tion ; but it is only in our own times that labor moves freely, and in 
great portions of the earth it is still fixed. Means of information like 
the telegraph and of communication like the steamship, bringing 
markets together, abolish the old-fashioned speculation of sailing a 
fast ship into a market which had to pay high prices because it knew 
nothing of cargoes to come, and replace it with the speculation of "the 
street." By cheapening all products toward a standard price, they 
minimize profits : but at the same time by giving wider control to indi- 
vidual men they aggregate profits, so that in our day great fortunes 
grow from the integration of infinitesimals, the heaping up of petty 
returns. The organization of industry has given new power to Brains : 
the Director, the entreprhieur, is the most important factor in modern 
economy, and is best paid : with him lies the immense responsibility 
of mis-directed production, under immense penalty of loss and 
perhaps ruin. Thus intelligent leadership to direct and a well-in- 
formed public opinion to control affairs, are found to be peculiarly 
essential to conditions of economic progress in our own times. 

The economist of the strict sect indeed invents an economic man 
isolated from humanity and from the times, who does not exist ; and 
lays down principles which "being true everywhere are true no- 
where." His world is a fluid world, in which all laws act without 
hindrance and with prophesied result, in which every atom moves 
without friction, in which the supply of labor flows instantly to the 
level of demand. Yet it is Adam Smith himself, the father of mod- 
ern Economics, who points out that man [labor] is "of all sorts of 
luggage the most difficult to be transported." And the author of 
the most systematic treatise on Political Economy in our own day, 
Prof. F. A. Walker, devotes paragraphs to showing that the considera- 
tion of Economics must be divorced from ethics and all higher relations, 
only to give page after page through every department of his work to 
point out how these same human conditions modify and deflect econ- 
omic forces. Desire, the motive power of labor, varies with a thousand 
moral and spiritual relations which affect every division of Economics. 
The cheerful man, well-placed, will produce more ; the wise man, 
well-informed, will exchange to more advantage ; the just man will 



OF WORK AND WEALTH. 7 

distribute more fairly and so get more from each agent in produc- 
tion ; the prudent man will consume productively instead of waste- 
fully. The introduction of Christianity, a purely spiritual [force, has 
been perhaps the most potent factor in producing the modern econ- 
omic world. " Custom," the public opinion of the past not yet revised 
by the present, is one of the chief factors in actual economic condi- 
tions. The economic man is an abstraction; it is the human man 
who exists. 

Yet there is no real conflict. The difference between the analytic 
school and the historical school, the economic-scientist and the states- 
man-economist, is a question of method, of limitations. A generaliza- 
tion inevitably fails, more or less, as it is applied to the actuality, to 
the individual. The method of science is to ascertain laws by ab- 
stracting elements. The geographer, mapping out the world, first 
reduces all mountains and valleys to a standard plane of " high water 
level," which has no real existence ; yet this is a practicable method, 
producing useful result. The mistake of the scientific-economist 
is in not recognizing the limitations of his own work ; on his Sci- 
ence of Economics, the Art of Economics must be built. A great 
central law of science is modified by circumstance into specific laws, 
and these are applied in turn to specific actualities, until from the sci- 
ence grows an art which directs life. Yet under all variations of men 
and the times, the scientific principles of Economics are underlying 
forces and can be seen in tendencies. It is gravitation that controls 
the flight of the arrow, though by human volition I shoot it high 
into the air, and when I build a house it does not fall because gravi- 
tation, pulling down, holds it together. 



II.— THE MAKING OF WEALTH. 

The broad law of Economics, its law of gravitation, is the universal 
fact that men desire to get most for least labor. This is the great 
motive underlying the business transaction, out of which the science 
of Economics proceeds. It is the motive of self-interest. Until 
Adam Smith published his "Wealth of Nations," the Bible of Eco- 
nomics, in 1776, most people assumed that each man's and each 
nation's self-interest was opposed to that of every other man and of 
every other nation, that in the business transaction one side must 
lose. It is now seen that men do not trade unless each side gains, 
for each side will keep what it has, no matter how much the 
other wants it, until the other offers something which is to 
it better than what it has, — that is until it gains. Thus each gets 
more than it gives. Trade is not war ; it " seeks peace and ensues 
it." Therefore we speak nowadays of enlightened self-interest, and 
we see that by its operation the world gains. 

Economics naturally resolves itself into four divisions, Production, 
Exchange, Distribution, Consumption; through all is to be traced 
this motive of self-interest, as men seek to do the least work possi- 
ble to get the thing they want, or for a given amount of work to get 
the most they can. Labor succeeds as it produces its own keep or 
cost and a surplus besides, labor active producing labor stored, or 
Wealth. Labor, applied to natural elements, is thus the fountain of 
wealth ; in this sense, Production is the first factor in Economics. 
But so far there is only latent value, the no-wealth of the miser who 
hoards. It is when, by the division of labor, one man producing 
one and another the other thing, men begin to exchange, that wealth 
is realized, value or power-in- exchange begins, Economics proper 
begins. The saved product seeks a market, i. e., those who want it 
and will give other things for it or " pay a price," whether for themselves 
or others, for consumption as food, the raw material of human- 
kind, or as the raw material for further labor. Exchange, itself 
a process of labor and in that sense allied to Production, is the sec- 
ond division of Economics. 



OF WORK A ATI) WEALTH. 9 

Into product, as realized into wealth by exchange, there enter 
several elements of cost, and the return from the product must be 
distributed, in general among — 

The Landowner, selling the Use of Land, which is paid for by 
Rent. 

The Capitalist, selling the Use of Capital, which is paid for by 
Interest. 

The Laborer, selling the Service of his Body (with more or less 
skill), which is paid for by Wages. 

The Director {entrepreneur), using the Service of his Brains, 
which is paid for by Profit. 

Distribution is thus the third division of Economics ; it plays an 
important part in the placing and consequent re-production of wealth, 
and it includes in our times the most pressing economic problems. 
Lastly, Consumption, itself the final purpose of Production, Ex- 
change, Distribution, is the final division of Economics ; the balance- 
sheet of prosperity depends upon whether consumption keeps within 
production and is itself re-productive, or whether it exceeds pro- 
duction and leaves nothing from which to again produce. 

Throughout all, as has been said, the great motive of self- 
interest is active and visible. In Production, men will till first the 
most productive soil easiest accessible ; in Exchange they will buy 
in the cheapest market and sell in the dearest \ in Distribution, they 
will claim as much of the earnings and give to others as little as 
they can; in Consumption, they will use what best suits them at least 
cost. 

Man lives, then, by applying labor to the resources of the earth. 
Even if like the monkeys, he lives on nuts, he must apply labor to 
pick them off the trees or from the ground. When he goes beyond 
the want of the moment and begins, like the squirrel, to store the re- 
sult of his labor, or, like the bee, to change it in form, he produces 
wealth. Since men, unlike animals, soon learn to barter, this 
wealth has Value or power-in-exchange. Three kinds of produc- 
tion of, or increase of, value are discerned by Prof. Knies — time- 
value, got by keeping, as when ice is kept from winter to summer, 



10 OF WORK AND WEALTH. 

which is storage ; place-value, got by moving, as when ice is taken 
from Maine to Louisiana, which is commerce • form-value, got by 
re-working, as when ice is produced from water by artificial means, 
which is manufacture. Agriculture produces form-value by making 
it possible for natural forces to transmute earth into produce, the 
crude material for all manufactures, as each manufacture in turn 
produces raw material for the manufacture next above it. To the 
grain thus raised, place-value is added by transporting it to market, 
and time- value by storing it until it is more in demand. There may 
be decrease as well as increase of value in all these ways, as when 
grain rots, or is taken to the wrong place, or is kept till it is less in 
demand ; so a man may keep the same thing, and have more or less 
wealth, because the same thing will have, according to time, place 
and form, more or less value or power-in-exchange. Besides these 
three positive increments of value, giving us things when, where and 
how we want them, there is a negative increment, depending on 
how little there is of a given thing of which no further supply can be 
had, as Port wine of the vintage of 1820, which is called scarcity- 
value or monopoly-value. This kind of value, we shall see, apper- 
tains to land. 

But there cannot be more than one wealth in one thing. If a man 
"owns " a house worth $10,000, and another man holds a mortgage 
on it for $5,000, there is still only $10,000 of wealth, and the first 
man is really worth only $5,000. Promises-to-pay, as mortgages upon 
land or houses \ or personal notes or bonds, which are corporation 
notes ; or paper-money, which are government notes, are not wealth, 
but we call them " property." Property thus includes natural elements, 
wealth and evidences of debt, and a man may have a great deal of 
this last kind of property without holding any part of the wealth of 
the community. A man's fortune in " greenbacks " may be burned up 
without the real loss of a cent to the community. So "shares," which 
entitle their owner to part of the returns of a business, represent property, 
but are not wealth ; when the real wealth is divided among the share- 
holders, then the " shares " are given up, and the wealth, before 
general, is now individual. This distinction is practically important, 



OF WORK AND WEALTH. 11 

because it is a common mistake to count the two men together worth 
$15,000 instead of $10,000 ; or to tax both the house and the mort- 
gage, instead of the house alone or $5,000 on each. The wealth of 
a nation consists thus not in mortgages, bonds and other promises- 
to-pay, (unless they are from other nations), but in its real possessions, 
less its foreign indebtedness, plus what other nations owe it ; as a man 
is worth the things he has, less what he owes, plus what others owe to 
him. There is often this difference also, that dealing in things is 
usually gain to the community ; dealing in evidences of debt is often- 
times not, but degenerates into mere gambling and the loss of the 
labor of exchanging. 



III.— WHAT PRICE REALLY MEANS. 

Value then is realized in Exchange, and as this division furnishes 
the fundamental laws and the most frequent terms of Economics, 
it is well to understand its relations and the functions of its chief 
instrument, money, before passing to the divisions of Production 
and Distribution, which depend on Exchange and, being counter- 
parts to each other, can best be treated together after Exchange. 
When a man has produced by his labor more or other than he 
immediately needs, and begins to exchange this surplus with others, 
that moment the whole industrial organization has its start. 

Value, which is power-in-exchange, does not exist without utility 
(which means that some person wants to use the valuable thing, 
whether for beneficial or hurtful purposes), but utility is wider 
than value, for there are useful things, as health or free air, which 
cannot be exchanged. Value is thus the equivalent of exchangeable 
utility. Value depends upon the relation of supply and demand 
in free competition in any given market. If a government forces 
me to sell it a hat for a dollar of bad money, or if I choose to sell 
a hat for half value — that is, to give away half its value — to a friend, 
neither is exchange in the economic sense and neither illustrates 
value. 

Value is usually expressed by price, which is power-in- exchange 
stated in terms of some specific commodity. In barter, the price 
of a hat might be two bushels of wheat ; in the higher organization 
of trade in which money is used, price is usually expressed in terms 
of money, as the price of a hat is a dollar. If values were stable, 
both as regards the thing sold and the thing in which it is paid for, 
price would remain the same. But neither condition holds true. 
There are thus two elements of change in price : the value of the 
thing for which a price is given, and the value of the thing in terms 
of which it is stated — the value of the hat and the value of the 
bushel of wheat or the money. Nothing is more liable to deceive, 
in history, and to some extent in the transactions of the day, than 



OF WORK AND WEALTH. 13 

absolute statements of price. Wheat may be at one time the 
scarcest, at another time the most plentiful, thing in a community, 
so that a hat having the same value might one year be priced at 
three and another at one bushel of wheat. The same is, in less 
measure, true of money ; a penny some generations ago in England, 
meant more purchasing power than a shilling means to-day — but a 
few pence then made up a day's wages. Moreover, there are quali- 
ties of wheat, and there is " good " and " bad " money, money worth 
its face value as metal, and so-called paper money or promises-to-pay 
which are not likely to be paid and therefore are worth little. So, a 
laborer may get a price of one dollar a day in good money, and have 
really higher wages than if he got the price of two dollars a day in 
bad money ; price is not named in the same kind of dollars both 
times. When prices are low, it often means that money is scarce or 
" high " ; when prices are high, it is often because money is more 
plenty than goods, i. e., money is " low." 

If "the economic man" really existed, producing just what was 
wanted and placing it by exchange just where, when and in 
the quantity wanted, under perfect conditions of competition, supply 
and demand would balance, and value and therefore price would 
equal the cost of production, or more accurately of production of 
that part produced at the most disadvantage at which it is still worth 
while to produce. For it is evident that no man is willing to pay 
more than his neighbor in the same market for the same thing — 
unless by reason of debt, or ignorance, or other limiting conditions, 
he is not a free buyer ; and this price cannot be lower than the 
price at which it stops being worth while to produce — that is, at 
which the disadvantages of producing cease to be outbalanced by 
the advantages to be had in exchange. The producer who produces 
with more advantage — that is, with less outlay of capital and labor — 
gets this price, and has the equivalent of his advantage as gain. From 
this comes the important economic law that there can be but one price 
for a given thing in a given market ; otherwise a buyer would pay a 
price according to his particular need, a starving man ten times as 
much for bread as a man who doesn't much care whether he eats 



14 OF WORK AND WEALTH. 

another piece or not. This price, stated from the producer's or 
seller's side as the cost of production at most disadvantage, is, stated 
from the consumer's or buyer's side, equivalent to the "final utility" 
of the article — that is, utility when the supply approaches superfluity 
and exactly balances demand. At this point the seller, who cannot 
replace his product by less labor, has no great desire to sell, and the 
buyer, to whom it is not useful at any higher price, is indifferent 
about buying ; their desires are balanced ; they trade on even terms. 
To this "final utility" price, approximating cost of production, values 
inevitably gravitate ; it is the normal price. 

But the ideal economic conditions above stated rarely, if ever, 
exist. It is the cost of the labor necessary to replace an article 
that directly determines its power-in- exchange, or rather, if we in- 
clude those things which have monopoly-value and cannot be re- 
placed, the cost of acquiring, viz.: the amount of labor or of pro- 
duct of labor for which it can now be got. This is directly depend- 
ent upon the actual relations of supply and demand, the amount 
of a given thing offered at the price and the amount of the given 
thing desired at this price. If the supply is insufficient, the price ad- 
vances, and the supply is then likely to be increased by increased 
production or by drawing from the general stock or potential supply, 
which may be in other markets or hitherto unoffered because the price 
was so low. The market price thus varies from the normal price, 
to which, however, it tends to approximate. 

A market, in the economic sense, includes those who stand ready 
in any one place to buy or sell to each other the same article. 
Thus the spice merchants and the importers' agents at Manila con- 
stitute one market ; the importers and pepper-grinders in New York 
another; these manufacturers and the wholesale dealers, also in New 
York, another; the wholesalers and retailers, whether living in New 
York or coming or sending to New York to buy, another; the 
retailers and the consumers a fifth, in each of which the price of. 
pepper would be different, as also it must be different in different 
places between which competition does not fully act. 

The market price differs from the normal price, because of what 



OF WORK AND WEALTH. 15 

may be called friction in economics, the actual failing from the free 
conditions of production and competition pre-supposed by theoreti- 
cal economics, (i) Men already may have produced in excess of 
present demand : a stock exists. Further, this stock may be liable, as 
is fresh fruit, to sudden deterioration. (2) It is not possible for pro- 
duction to turn itself at once to increase the supply of a needed arti- 
cle. A large " plant," or time, or a reorganization of industry may be 
necessary. (3) Consumers may substitute one article for another as 
the price of the latter is raised. (4) Custom or habit influences 
price j it is customary to pay a penny to a boot-black in. London, 
and five cents in New York. (5) The coinage system affects price, 
particularly in small transactions : when, after the war, the price of 
blacking boots was lowered, it went from the ten-cent price to the 
five-cent price ; all theatre and similar charges are at " even " rates ; 
the pay of " days' labor " usually rises or falls by quarter-dollars or 
dimes. (6) The " tone" of the market, the result of moral and intel- 
lectual factors, dealing with the previous conditions, has perhaps 
the strongest influence of all on the market price at any given 
moment. The seller offers or withholds, the buyer purchases or 
declines, according to his judgment of present facts and future prob- 
abilities of prices. Thus a rumor on the street, a panic, become real 
factors in price. In stock speculation this cause alone leads to 
large percentages of variation in price, while the utility of the wealth 
represented remains closely the same. All these causes really affect 
price, aside from any question of good or bad money, which nomin- 
ally affect price more than all. 

As we go from large to small transactions "the economic man" 
more and more disappears, and the friction of retail trade obscures 
the action of economic laws. Mr. Mill points out that competition 
acts imperfectly upon retail price and tends chiefly to divide the gain 
among a greater number of dealers. It is only the city consumer 
who can " shop " to advantage. When there is but one shop within 
the radius of the consumer, he, ignorant of market or of normal 
price, is at the mercy of the seller to the limit of his needs, and a 
system of credit perhaps prevents his availing himself of cheaper 



16 OF WORK AND WEALTH. 

prices when chance competition puts them within reach. " Retail 
buying and selling," says Prof. Cairnes, " is thus made to rest upon 
a moral rather than an economical basis " — which is the more true 
when it is remembered that in retail trade the consumer must 
depend largely upon the honesty of the seller for the quality of what 
he buys, which he is not expert enough to test for himself. 

In the contrary direction, there are also limitations to "the 
economic man " and to the universality of the application of economic 
laws. Prof. Cairnes has shown that competition is limited, in a 
stratified society, by the existence of " non-competing groups " 
within a nation, which do not produce the same thing, and would 
not transfer their labor to such production under any conditions 
reasonably within view. The farmer, the artisan, the merchant, the 
physician, do not easily turn to each other's kind of work. And Mr. 
Mill, in his theory of international trade, has shown that as far as 
distance and other barriers, differences of climate and of other 
natural advantages, between nations, prevent men moving freely 
from one to another and keep them working under different condi- 
tions, competition is again not direct and complete. As a result of 
this, the price of an article in an importing country is not measured 
by its cost in the country of production, but by comparative costs 
in the two countries. Buenos Ayres can send us hides, say, at half 
the cost at which we can produce hides : but Lynn can make shoes 
at quarter the cost at which Buenos Ayres can make shoes. At this 
rate, the American can at the cost of half an hour's labor buy what 
costs the South American two hour's labor. Thus, by foreign trade, 
we gain by getting goods at less expense of capital and labor than 
we can make them ourselves for ; yet, as in all free exchange, the 
foreigner gains, since he gets more than he could make for himself. 

It has been the tendency of material progress to overcome the 
physical barriers between nations and of intellectual progress to 
break down economic barriers. The healthful condition of society 
consists in promoting the widest economic freedom (/. e., competi- 
tion) consistent with protecting the weak against the strong, as by 
factory acts or police. There is a doctrine, however, which uses 



OF WORK AND WEALTH. Yi 

the word " protection " to mean restraint on freedom of international 
exchange, and a resulting interference with and re-direction of the 
natural tendencies of domestic production. This doctrine has for 
years controlled the economic policy of the United States as a nation, 
despite its general trend towards freedom and the entire liberty of 
exchange successfully existing between the several States. Its aim 
is to identify economic groups with political divisions, whether or 
not these correspond to race or geographical or other real divisions, 
with the purpose of making each nation complete in itself and 
independent of all others by " diversifying industries." This com- 
monly means putting such a premium on manufacturing industries 
as will induce manufacture rather than agriculture. The means 
employed is a " tariff" or a series of duties on importations, which 
permits foreign goods to be bought only at greater disadvantage, 
and thus raises the price at home of the articles " protected." Such 
laws do not, as has commonly been taken for granted, affect the 
wages of the laborer (except indirectly, and then often to lower them 
by the derangement of industry), but rather the profit of the director 
or entrepreneur in particular industries. To apply the doctrine to 
labor would be to lay a tax on or prohibit immigration, and to do 
this would be to protect the strong against the weak, which is un- 
necessary. The upholders of " protection " claim that the result 
of compelling the community at large to pay higher prices and 
higher profits will ultimately be the benefiting of the community 
as the protected industries grow into success, no longer need help, 
and produce cheaper. But as a matter of fact, new industries do 
not seem to have been produced by " protection f the industries 
which clamored originally for five per cent duty at last demanded 
fifty, and prices became cheaper only when the misdirected produc- 
tion broke down and resulted in bankrupt sales. Economists, with 
but few exceptions, have favored free trade and opposed " protec- 
tion" on the moral ground that the taxation of the whole community 
for a part is not just; on the economic ground that the restriction 
of freedom of production is economically disastrous ; and on the 
practical ground that the benefits claimed as offsets to these disad- 



18 OF WORK AND WEALTH. 

vantages have not actually been produced. "Protection " is opposed 
to revenue, because its purpose is to prevent the importations from 
which revenue is to be collected. A tariff for revenue is thus the 
contrary of a protective tariff. Revenue begins when "protection" 
stops. 

Connected with the " protective " theory of foreign trade, is the 
misleading doctrine of " the balance of trade." This curious super- 
stition holds that any one country is in a dangerous financial condi- 
tion when its imports exceed its exports. But national prosperity is 
only the sum of individual prosperity, and a man counts himself 
richer when he gets in more than he gives out. The difference in 
his favor is profit. This is just as true of nations. England's com- 
merce is the most profitable in the world ; and for this reason the 
"balance of trade" is always against England. Were all countries 
prosperous, the " balance of trade " would be against every nation. 
The mistake arose from what was long called "the commercial 
theory " of foreign trade, which held that nations should in every 
possible way be embargoed from dealing with each other, whereas 
Economics shows that by trading, nations as well as men gain. 



IV.— ABOUT MONEY AND BANKS. 

The use of money, instead of barter, is one of the great steps of 
progress. Money is a common medium of exchange, and its im- 
portance as an economic agent consists in enabling us to do away 
with the " double coincidence, of wants and possessions," for which 
barter waits. We can accomplish half our exchange and hold the 
purchasing power so acquired safely in suspense. The hatter who 
wants a pair of shoes no longer need wait until the shoemaker wants 
a hat. He may now sell his hat for money and buy shoes, or what 
he will, in the quantity, when, where and of whom he will. These 
conditions suggest the qualities and uses of money, and the require- 
ments for real or good money. It is, first, a common medium of 
exchange ; every one will take it for^ any goods, and its divisibility 
enables one to buy as much as he wants. The hatter need not take 
two pairs of shoes because he can't swap half a hat. Second, it is, as 
incidental to the first, a common measure of value, or common 
value-denominator for the comparison of the values of all other 
things, so that a price current in terms of money is understood by all, 
and a hundred articles can be priced in a hundred quotations, where- 
as to price in terms of every other would require 4950 items. This 
furnishes a universal language in trade. Money is, third, a standard 
of values, or measure for deferred payments. This is its use in credit, 
which is purchase in which payment is deferred. A promise to pay 
at a future time is expressed in terms of money, in preference to 
other commodities, because people understand this term and because 
they look upon money as of staple value. This makes it, fourth, a 
convenient storer of values, so that men can buy when they will 
now or in the future, to best advantage. Finally, its universality, 
that it can be used anywhere, and in transactions with anybody, 
gives its final usefulness in exchange. It is the highway of exchange, 
enabling any producer to deal with any consumer, and so fulfill- 
ing the fundamental condition of Economics, of getting most for 
least labor. Money, it is thus evident, has both a real use as a 



20 OF WORK AND WEALTH. 

medium in actual use in exchange, and a nominal use as a measure 
or denominator of value, in which not it but its terms are used. 

However value may differ, by circumstances of the market, from 
cost of production, it always approximates to, and is somehow based 
on, cost of production. The sound basis for money-value is there- 
fore wealth, something which has cost proportionate labor. Various 
kinds of wealth have been used as money, as wheat and cattle (" pe- 
cuniary" comes from the Latin fiecus, a flock) by the ancients; 
tobacco by the American colonies; skins by the hunting communi- 
ties. These, however, lacked one or more of the full requirements 
of money, and the tendency of civilized communities has been to the 
metals, till at last iron, tin and lead have given way to the " precious 
metals," silver and gold, copper or an equivalent being used for 
"small change " or token currency. 

The two " precious metals" cost such an amount of labor as to make 
them convenient equivalents to handle within the common range of 
buying and selling ; they have utility as ornaments and in many in- 
dustrial arts ; they are thus easily transferable and universally accept- 
able ; they are almost imperishable, not wasting greatly either by 
handling or rust or conversion into coin and back again, and their fusi- 
bility and ductility render them accurately divisible. Gold has most 
of these qualities in greater degree than silver, and the tendency of 
civilized communities seems to be toward that one medium, in avoid- 
ance of the possible confusion of two standards, which may vary in 
ratio of value. But considerations of currency facilities here enter in, 
and on the question of " bi-metallism," a double instead of a single 
standard, the world is yet divided. For, although the precious 
metals retain from season to season more steady or staple value than 
almost any other commodity, the ratio between them does vary 
(silver having become steadily the cheaper within historical 
times) and their value may be very much increased by increase 
in the sources of supply, as the opening of the Potosi mines 
in 1545 and of the California and Australian mines in 1849-51, or 
the invention of new methods which utilize proportions of metal in 
ore not before realizable, and similarly decreased by cessations of m in- 



OF WORK AND WEALTH. 21 

ing industry such as were caused by the invasion of the Roman em- 
pire by the Teutons, and the South American revolutions. This last 
fact has suggested to modern economists, Roscher and Jevons being 
its leading advocates, the use for long deferred payments of " a tabular 
or multiple standard of value," in which the prices of a number of 
staple commodities are combined to obtain the nearest approach 
possible to a fixed average. In England, for instance, leases of and 
fixed charges on land have become ridiculously changed by their 
statement in the money terms of their original date. 

To make the precious metals more useful as money by avoiding 
the inconvenience and error of individual testing and division, they 
are coined, that is, made into pieces of definite fineness, weight and 
size, and therefore of determinate and well-understood value. Coins 
have been of various shapes, stamped on one or both sides : it is at 
last found that a round disc, stamped on both sides, and milled on 
the edge (to prevent filing down), is the best shape. The degree of 
fineness, or purity, of the precious metal, is determinate, and the 
stamp of the coining authority, usually a government or the deputy 
of a government, declares its face value and the source of issue. This 
work of making coins cannot be done without cost. It is one of the 
mooted questions of Economics whether a government ought to pay 
this charge as one of its general expenses, as is done by England, and 
leave in the coin the amount of precious metal its face-value calls for, 
or whether it should deduct from the coin a proportion of metal, so 
that the coin is less than its face-value by the amount of this charge. 
Such a deduction, whether for actual cost or more, is called seign- 
iorage, the share of the issuing authority or seignior. The United 
States charges a small seigniorage. The objection to gratuitous coin- 
age is that the coin too readily goes into the melting-pot, reducing 
the amount of money and requiring further expense in " a perpetual 
motion" of fresh coinage. The objection to seigniorage is that the 
money ceases to be of its face-value, and that seigniorage offers to a 
government in times of need a dangerous opportunity to debase the 
coinage. Free coinage, as distinguished from gratuitous coinage, is 
when any citizen can have bullion coined by the Mint at will on the 



22 OF WORK AND WEALTH, 

same terms as the government. The seigniorage on gold in England 
reached under Henry VII. sixteen per cent deduction j the English 
pound, once a pound's weight of silver, has become three-tenths that 
(66 instead of 20 shillings to the pound's weight of silver), and the Span- 
ish maravedi, once of gold, is now debased to a copper coin. Ricardo, 
followed by Walker, lays down, however, as the law of seigniorage, that 
debasement of coin does not of itself produce depreciation of it as 
currency, so long as the quantity issued is limited to the actual need 
for money in exchange. This, as a historical fact, holds true so long 
as the trading community are willing to take the debased currency the 
same as good, either because of ignorance or of habit (which is in 
this case very strong), or of legal force, or of other considerations. 
The trade dollar of the United States was up to a sudden change 
accepted as a true dollar. But when people begin to decline to take 
the debased currency, to resort to barter, or to modify or limit their 
production because they distrust what they are paid in, Ricardo's 
law no longer holds good. Moreover, a government thus profiting 
by seigniorage rarely has refrained from using the metal saved to 
make more coin, and finally from issuing debased coin recklessly, and 
so producing inflation and at last ruin. This is one of the laws that 
hold good only so long as they are not needed. 

It early occurred to inventive minds that money in its real use 
might be represented in turn by something which should furnish 
a cheaper and still more convenient medium of exchange. Thus 
" paper money " came about. Marco Polo found in China a " paper 
currency" of mulberry bark, and "bank money" was issued in 
Sweden in 1658. "Bank money" is a term used to designate paper 
currency on which is a promise to pay money and which can be con- 
verted into money on demand. " Inconvertible paper money " is a 
currency for which money cannot be had on demand. Economists 
still fiercely dispute whether or not paper currency (of either sort) is 
to be called money, or where the line shall be drawn. Paper money, 
as a matter of fact, possesses some of the qualities of face-value metal 
money, but not all, and the dispute is chiefly one of those questions 
of nominalism which so often arise in abstract science at a stage 



OF WORK AND WEALTH. 2S 

when a word has not yet crystallized into absolutely accurate use. It 
would perhaps serve honest purposes to confine the use of the word 
to the real thing. 

Ricardo has pointed out that inconvertible paper money (properly, 
that which does not promise to pay) is practically debased coinage 
on which the seigniorage is ioo per cent, for the cost of printing is so 
little as to be fairly ignored. He holds, accordingly, that such a 
currency, not issued in excess of the need for money in exchange, 
does not necessarily depreciate, but to this is again to be added the 
further saving clause, so long as people will or can be forced to take 
it. As a matter of fact, people sooner or later distrust it, and if they 
finally make up their minds against it, it is literally "good for noth- 
ing." " Fiat money," that is, a creation of paper currency which is 
not a promise to pay, has the double likelihood of depreciation arising 
from liability to over-issue and from popular rejection of it as a sham. 

Paper money, for which money cannot be had on demand, but 
which is a promise to pay at some deferred or indefinite time, is in 
one- sense inconvertible money ; in another sense it is "bank money," 
of a depreciation corresponding to the probable lapse before pay- 
ment and the probable solvency of the debtor, (/. e., discount or in- 
terest, and insurance), both as the probability is measured by the 
judgment of the exchanging community. 

" Bank money," for which face-value metal money can be had on 
demand, would be a merely mechanical substitute for money, but 
for the fact that the money is never, or hardly ever, demanded at one 
time, and therefore bankers may issue more substitute money than 
they have metal money in which to pay it. Two schools of econo- 
mists dispute on this ground. The advocates of the " Banking 
Principle," whose chief authority is Thomas Tooke, hold that so long 
as bank money is, as a matter of fact, strictly convertible, it is as 
good as, besides being cheaper and more convenient than, metal 
money, and, regulating itself automatically, is economically sound and 
safe. The advocates of the " Currency Principle," whose leader was 
Lord Overstone, hold that without restriction there will always be a 
likelihood of over-issue, and consequent depreciation and inflation. 



24 OF WORK AND WEALTH. 

The bank-notes of England are issued under this last theory, which 
was victorious in the Bank Act of 1844, under which the Bank of 
England, after ^15,000,000 issue, can only issue paper to the extent 
of its reserve of metal money, pound for pound, its issue department 
being completely severed from its banking department. In the 
National Banking system of the United States security for ninety per 
cent of circulation must be deposited in government bonds, but the 
" wild-cat " banks of the old system sometimes held as little as three 
per cent of specie. 

A chief usefulness of a full-value money is the automatic regula- 
tion it ensures for trade. If much sugar is produced in the West 
Indies, so that sugar becomes cheap, i. e., money dear, or if because 
of a great wheat crop, more money has come to the United States 
than it needs (the United States being from its product of precious 
metals normally an exporter of money), a true money flows easily to 
the West Indies, and we import with advantage, i. e., get our sugar 
cheaper. But a debased or substitute-money does not go abroad 
for two reasons. Its value is not estimable abroad, for the accepta- 
bility of substitute-money (in excess of need) depends upon the judg- 
ment of the solvency of the debtor, and those at a distance are 
ignorant as to this solvency. Also when full-value and debased cur- 
rency are circulating together with the same purchasing power, " bad 
money," as stated by what is called Gresham's law, " always drives 
out good money," which people hoard or send away where they can 
not use bad money. When bad money thus checks exchange with 
other countries, it acts at home to check production, raise prices, pro- 
duce inflation and wreak ruin. It isolates a country from the benefit 
of the world's trade, and limits consumers. Thus " cheap money " is 
dear in the end. Paper money has been called " the alcohol of 
commerce," and, although it sometimes seems a necessity at a critical 
period of a nation's life, the after-result is usually that of a hospital 
patient who is given stimulants as a medicine and becomes a drunk- 
ard. The height of this evil is reached when paper is declared a 
" legal tender," by providing by law that it shall be received in pay- 
ment of all debts, or by depriving creditors of legal recovery in any 



OF WORK AND WEALTH. 25 

other medium. But within proper limitations convertible paper 
money may usefully release full-value money to other purposes. 
Adam Smith compares this use to making a highway in the air, so 
that some of the old roads are released to grow crops on. 

A bank is properly a reservoir of capital stored for use. The 
savings of individuals are like little rills of water, or stagnant pools 
without outlet. When these flow together there is presently a stream 
whose power can be utilized, and by a mill-pond or reservoir this 
means of power is stored so as to be used when and where it is 
wanted, a part by the saw- mill, a part by the grist-mill. So people 
bring their " deposits" of money to a bank, to be kept till called for ; 
and these deposits, added to the "capital" of the bank, i. e., the 
amount contributed by the shareholders or owners, is available for 
loans to those who need to use more capital than they have. This 
money is frequently loaned to government, which indeed was the 
function of the first banks in Italy, either directly or by buying 
government issues to sell again. Corporations as well as governments 
are now large borrowers from the banks in this way. The body of 
banking business is, however, concerned with private business men, 
who give their " notes " or " business paper," i. e., promises to pay so 
much money at a stated future time, and receive from the bank that 
much money less a charge which is called " discount." This charge 
depends upon the demand for and supply of money, and is usually 
stated in terms of a percentage for the year, like interest. A bank 
may also issue paper-money or promises to pay on the surety of its 
deposits, but such issue is not necessarily a part of banking proper, as 
is shown by the separation of the issue and banking departments of 
the Bank of England. A bank also permits depositors to draw on it 
" checks " or orders to pay money, and thus does the service of per- 
mitting the cancellation of indebtedness without the actual transfer 
of money. In a large banking centre like New York the "clearing 
house " in turn performs this function for the banks themselves at 
the close of each day, so that transactions of millions are finally 
settled by the transfer of a small balance from a debtor bank to a 
creditor bank. A bank, through the agency of banks in other 



26 OF WORK AND WEALTH. 

places, collects distant debts, and this function develops into the 
system of " drafts " and of foreign exchange. A creditor, that is, 
some one to whom money is owed, " draws " upon the debtor who 
owes him, and these "drafts" the bank collects, as also it collects 
" notes " or promises-to-pay given by the debtor himself. In trans- 
actions between different countries this system becomes of great 
importance ; the bank is the agency which sells to a man in New 
York the right to receive or to transfer in London, for instance, 
money due by some other Englishman to some other American. 
This saves the risk and cost of sending specie, L e., gold or silver 
money or bullion ; and the charge for this service, or rate of ex- 
change, varies, within^the limits of the cost of shipping, specie accord- 
ing to whether more or less money is due in London than there are 
debts to be paid there. A bank also deals in foreign or debased 
moneys, making a small charge for exchanging them for current 
money. A bank also, as a place of safe deposit, receives valu- 
ables in store, which was the origin of banking in England among 
the goldsmiths. But in recent years this function has been differ- 
entiated, and " safe deposit companies " have grown up. Here are 
at least six functions of the banking system, whether performed by 
government banks, or joint-stock banks, or private bankers, or note or 
exchange brokers, for each of which functions a charge is legitimately 
earned. They all accomplish the one purpose of making the most 
of the existing stock of capital. There is a popular prejudice 
against even so good a system as that of our National Banks, giv- 
ing us the benefit of a sound and uniform currency, because they 
are " combinations of capital " " threatening industry." It is only 
unsound banks, like weak reservoirs, that threaten industry; the good 
ones help to give it the very means of efficiency. 

Because money is the form of wealth most visible, many people 
look upon it as the most desirable or as the only desirable kind of 
wealth. The fallacy of this is shown by the miser, who hoards coin, 
and gains nothing from it. Money is really useful only as far as it 
is kept in use to facilitate exchange. 



V.— OF PRODUCTION AND DISTRIBUTION: LAND. 

By means of Exchange, with money as its chief instrument, the result 
of Production becomes thus the subject of Distribution, and each 
factor which contributes to Production has a corresponding right to 
a share in Distribution. The principal factors are Land, Capital, 
Labor, Brains, contributed by the Land-owner, the Capitalist or 
wealth owner, the Laborer or hand-worker, the Director of produc- 
tion (entrepreneur) or brain-worker, who are paid respectively 
by Rent, Interest, Wages, Profits. The functions of any or all of these 
contributions to wealth may be united in the same person, as when 
a man owns his farm, has money enough to stock it, works on it 
himself, and himself manages any help he employs ; or as when a 
corporation, renting land and hiring labor, supplies its own capital 
and commutes the share of the director by paying him a salary and 
taking the balance of profit. But the price of each of these func- 
tions will always be paid, somewhere and somehow. 

There are other apparent items in distribution, which nevertheless 
do not affect this analysis. As the Land must be returned to the 
owner, so the Principal or its equivalent, as well as interest, must be 
returned to the capitalist. Taxes are an item of distribution in all 
business reckonings. They belong in part to wages, so far as the 
government is preventive and is paid for public-service as a watchman 
is paid, and in part to interest, so far as the government is constructive 
and furnishes roads, bridges and other capitalist elements in produc- 
tion. A constructive government easily becomes a paternal 
government, fathering all sorts of enterprises. The comparative 
usefulness of preventive and paternal functions in government 
is rather outside of Economics, but it may be here noted that 
this seems to vary with the development of a people, a gov- 
ernment which takes upon itself wide constructive work being the 
most useful in communities in which, as in India, the body of the 
people lack mobility, organizing capacity and foresight, and look to 
government to supply this lack of mastership, and least useful in 



28 OF WORK AND WEALTH. 

communities which have these qualities in high degree, are their 
own leaders, and are self-regulating. A paternal government is always 
in danger of making wholesale mistakes, and becoming mal- 
eficent instead of beneficent accordingly. Insurance is another item 
hidden away in this analysis. It enters into each of the elements 
of distribution as a provision against risk of loss — the deterioration 
of land, the loss of principal, the possible inactivity of labor, the 
failure of other transactions ; but it is chiefly visible as it increases 
interest. 

Of these four elements two are directly concerned with labor in 
the ordinary sense, for capital is but stored labor. Land, which 
comes first, the use of which is paid for by rent, is, on the contrary, 
a natural element, valuable in exchange because it is limited m 
quantity as well as various in quality. This is the one great excep- 
tion to the general truth that all wealth comes from work, for the 
remaining factor of the four, the Director, contributes brain-work. 
The air, and other natural elements or forces, are unlimited, at every 
man's service, equally productive throughout — therefore of no value 
in the sense of power-in-exchange. But land — the primal source of 
all wealth, extracted by labor — is otherwise, and the man who in 
some way has obtained actual or legal possession of it will not let 
another man put his labor upon it to make its potential values actual 
values, by raising potatoes or digging gold or building a mill along- 
side the stream which runs through it, without paying him rent. 
Land, in the economic sense, includes all property connected 
with the earth, as water-power, or mines, or shooting rights, 
or shore rights, or the right to fish in privately owned waters; 
in brief, anything that is "rented," not of human origin. Ri- 
cardo, the greatest political economist who followed Adam Smith, 
has shown (adopting Anderson's doctrine) that actual rent is deter- 
mined by the greater productivity of the piece of land in question 
above the land least productive, and it follows, because rent is a 
charge for increased productive power, that the price of produce 
does not depend upon rent. It is an element of cost, but not of 
price. For, if the better land will produce five times more product 



OF WORK AND WEALTH. 29 

with the same expenditure of labor, the equivalent of the labor so 
saved can be and is paid as rent. Rent is thus the equivalent of 
labor saved. It does not increase price any more than a labor-sav- 
ing machine increases price; the amount paid — rent in the former 
case, the making of the machine in the latter case — enters into the 
cost of producing, but does not increase the price of product, because 
in both the as costly or more costly labor is dispensed with. 

As Land is limited in quantity, so it is limited in quality or 
power of production. By tillage and finally by high fertilization, ir- 
rigation and like processes, men increase the natural product of land, 
at first with increasing success, but afterwards with increasing diffi- 
culty. There comes a stage where the labor of an additional man 
cannot get as much new product as each man before him has been 
able to get ; at this point, if ten men have been working, the next 
man cannot get one-tenth more, and so each worker averages less. 
This principle is known as "the law of diminishing returns." It 
does not hold, or holds in very small degree (though it has anal- 
ogies), in the ordinary processes of manufacture : and it is 
one of the peculiar elements of difficulty in the land question. 
This fact led to the doctrine of Malthusianism, the fear that popu- 
lation would ultimately outrun food, a fear emphasized by the 
fact pointed out by Carey that the " best lands '■ are taken up 
first. But this last means really that the accessible lands most im- 
mediately productive are taken up first : the bad land of a miasmatic 
swamp, properly treated, may prove the richest land, and much of the 
" great American desert," as the far West was called in Carey's time, is 
now one of the most productive parts of the earth. 

Accessibility is in fact one of the elements of productivity : land so 
distant from a market that it costs two bushels out of twenty to bring 
the crops to a market is economically of the same degree of produc- 
tivity as land at the market which has a productivity of only eighteen 
bushels. This is the key to the great influence of the wheat-fields of 
the far West upon the value of agricultural holdings in England. 
The cost of wheat produced at greatest disadvantage, i. <?., on 
the poorest land or at the greatest distance, fixes the price of all the 



30 OF WORK AND WEALTH. 

wheat that comes to the English market. The farmer who can pro- 
duce at less than this price gains ; he who can't produce except for 
more, loses and stops producing. If these Western lands are so much 
more fertile than certain English lands as to outbalance the cost of 
transportation, it will not pay to cultivate the English lands, and they 
produce no rents. The loss is the landlord's under a year to year 
rent : the tenant's under the fixed rent of a long lease. 

Rent, then, is the greater productiveness of the land rented above 
the poorest land actually cultivated. Rent thus tends to increase, as 
increasing demand (by increase of population or of wants otherwise) 
brings poorer and poorer land under cultivation. When all the arable 
land of the world is taken up, that land which can only be made to 
produce a bare subsistence for the laborer becomes the no-rent land, 
or standard from which rents count, because from it the laborer gets 
no surplus above bare subsistence to pay rent. If rent were paid, he 
has not enough to live on, and as there is no cheaper land, he would 
die. But still the Ricardo theory of rent shows that rent would not 
be a part of the cost of agricultural product, because it is only the 
equivalent of saved labor, and the extreme statement is made that if 
the whole $200,000,000 paid in England as rent for cultivated lands 
were remitted it " would not add a pinch of flour to the sixpenny 
loaf." For the price of bread is not made by the English farmer, but 
from the far-off wheat-fields of Dakota, which pay no rent and with 
which he must compete. This price is that of the product produced 
at greatest disadvantage ; the remission of rents would be to the 
English farmer so much gain, which for the first season he would 
gladly pocket himself. At once, therefore, rents would again com- 
mence; the landlord would demand part of this gain, which is rent, 
or the tenant would sub-let and live on the gain, receiving rent instead 
of paying it. So long as some land is better than other, and on this 
better land labor is saved, the price of this labor will in the order 
of nature be somehow paid as rent. If the whole world were 
re-divided into equal lots, at no-rent or equal rent, the rent process 
would instantly re-commence. 

The Ricardo theory of rent, however, is in practice much modified 



OF WORK AND WEALTH. 31 

as to the amount of rent paid, by many considerations, especially by 
public opinion as expressed by custom, exerted in favor of the tenant 
as in England, and by the immobility of the occupying class, acting 
against the tenant as in Ireland. Metayer rents, such as are fre- 
quent in England, and in Iowa and other Western States, where 
one-half or one-third the crop is paid jointly for the land and the 
capital in the farm-house, etc., also practically affect the operation of 
this law. 

This greater productiveness of one piece of land above another 
has not come from human labor, but is the gift of Nature. Human 
labor realizes this value, and increases the exchangeable value of 
its product by bringing markets to it as the country " develops," or 
by building railroads which bring it nearer to a market ; until finally, 
when the land becomes itself the seat of a market, it takes on a still 
greater value as city land. But the highest city rents still do not affect 
the price of commodities sold there, because " good stands " produce 
so much more business. Thus Mr. Stewart's store, on most costly 
land, sold goods lower than the little stores which at little rent did 
little business. This increment of value is seldom contributed by the 
man who owns the land, or by those before him • it is contributed by 
others, by those about him, by "society," by "the march of progress." 
And since original productiveness is not the result of human labor, 
but the gift of Nature, and " development " is in no wise the result of 
the human labor of the particular owner, present or past, but "the 
work of " society," it has become a question whether any particular 
owner should own the land. It is by singling out this element of 
rent as the one cause of present misery, and recommending that it 
be disposed of by making land-owners pay over all their rent as taxes 
to the Government, that Mr. Henry George has become the most 
popular of political economists. This question is the most difficult 
real question before economists: its solution is not so simple a mat- 
ter. The private ownership of land, though its abuse may have 
wrought great wrong, has been one of the great incentives to progress, 
and so long as land differs in desirability (because of natural produc- 
tiveness, or position, or other reason) no " equal division of the soil " 



32 OF WORK AND WEALTH. 

can last. It is true of land as of any kind of property, that if it 
were communistically redistributed at any moment, the men with 
more brains in a time of peace or of more force in a time of war, 
would presently get hold of a larger share than the men of less brains 
or less force. The confiscation of rent by a tax equal to its amount 
would be simply an artificial means to make all land equally valuable 
or valueless, and could be no more successful than attempts to keep 
down brains to the minimum of earning power of the hand-worker. 
The opinion of economists is, however, drifting toward the more 
moderate doctrine that land, and especially the unearned increment 
of value, is a proper object for the chief burden of taxation, a doctrine 
advocated by Mill as President of the Land Reform Association. 
The taxation of all land, unimproved on the same basis as improved, 
so that it cannot be " held for a rise" without cost and thus accumu- 
lated into great fortunes, may prove to be the chief method of rais- 
ing revenue in the future. 

Land, then, is the first element of production, the sine qua non : 
in distribution it claims its share as rent, however this rent may be 
concealed, or cloaked, or called by other names, or temporarily bal- 
anced by confiscating taxation. Without land, labor has naught 
from which to produce. The earth is in truth the mother of us all 
and of all our wealth. 



VI.— OF LABOR AND WAGES. 

Wealth cannot be produced without the two factors, Land, the 
original material, and Labor. If Land is the mother, Labor is the 
father of wealth. The share of the laborer, in distribution, 
is Wages. The function of capital is really to make labor more 
productive, by enabling it to work to more advantage, under better 
conditions, with better tools, and especially to promote the division of 
labor. It is therefore secondary to labor and dependent upon it. 

The division of labor commences at the earliest stage of economic 
organization, when one man, ceasing tomake everything he needs for 
himself, saves by doing fewer things more effectively, and exchanges 
that saving for other things made by other men. The more fully it 
is carried out, the higher is the industrial organization and the greater 
the productiveness of labor. 

The division of labor has been one of the great means of human 
progress. In a hundred ways, by enabling a man to learn earlier and 
easier the one thing he is to do, by making him more skilled at 
the one kind than he could be at several kinds of work, by saving 
him the time he would lose in passing from one work to another, by 
promoting little improvements or inventions, by enabling the strong 
to do hard work and utilizing the weak (as women and children) for 
easy work, the division of labor has fulfilled the great economic mo- 
tive, to get most with the least work. In the process of this divi- 
sion of labor, machinery has been invented which now does many 
times as much work as all human kind would without it be doing to- 
day. By its means each man finds opportunity to use himself at his 
best, to work with his head instead of with his hands, if that can best 
serve the community. At last, then, we have the vast industrial or- 
ganization which exists to-day, an organization of the highest type, 
as in the huge manufactories where great numbers of men work with 
their hands to do one thing useless by itself; others serve as watch- 
men ; others oversee ; others keep books ; others exchange the pro- 
duct; others lend the money to buy material and tools, to hire 



34 OF WORK AND WEALTH. 

buildings and land ; while somewhere there is the hard-worked brain 
or brains, the most important and costly factor of all, without which 
the organization would no longer exist. 

The dangers before so highly organized a system are very great. 
The man who does only one thing finds it difficult to earn a living 
otherwise ; or if the brain dies, the hands stop. The moral respon- 
sibility upon society and its educated leaders, for pre-vision and pro- 
vision, is here as elswhere increased as the world progresses. 

It is only out of product that wages, like the other returns in dis- 
tribution, can be paid; and as the product is increased, the possi- 
bility of paying wages is increased. The charge for rent, though a 
large part of the cost in agriculture, becomes more and more an in- 
appreciable part of the cost as we get into the more highly organized 
manufactures, (the charge for the use of a building being payment 
for capital and not properly rent,) and the average charge for rent in 
the cost of the total product of a community is not large, a fact 
which Mr. Henry George overlooks. Its place is taken in manu- 
factures by the charge for materials, which are really capital, paid 
for by interest : this charge in turn is in a great number of indus- 
tries less than half the total cost, while labor is at the lowest wages 
greater than half. The charge for capital is fixed, much more than 
wages are fixed, by conditions outside of the immediate product, for 
the rate of interest (apart from the insurance for extra risk) is deter- 
mined in the open market of the world, capital much more than 
labor having the fluid tendency to seek a level. Labor, then, in the 
long run, is paid out of what is left, after the comparatively fixed 
charges of rent and interest are paid; the greater the productiveness the 
more there is left, and the higher the wages that can be paid. Profit, 
the fourth element in distribution, comes, like rent, from the saving 
of labor, and does not interfere with the returns to labor, i. <?., with 
wages or with price. It is not, economically, a return to capital, but 
to the brains which can by better organization make one pair of hands 
do what two did before, and the remuneration is not got by reducing 
the pay of the first pair. As a matter of fact, the productivity of the 
first is raised, and the worker presently gets higher wages, while the 



OF WORK AND WEALTH. 35 

second worker finds employment elsewhere in satisfying the increase 
and growing variety of human wants. 

The variation of wages in different occupations and in different 
countries is determined by a number of conditions, always depend- 
ent on supply and demand. High cost (in time or money) of learn- 
ing a trade, or its disagreeableness, makes workers fewer and wages 
higher. The probable irregularity of employment or the improba- 
bility of success adds an element of insurance to wages. The superi- 
ority of physical skill or moral quality, as honesty, required, is another 
element. So, also, in any one trade, superior skill or unusual fitness, 
accomplishing more, gets higher wages. Thus it is impossible to 
say that all workers, or all the workers in any one trade, shall get 
the same wages; it is against the laws of nature. If a trade is 
underpaid, workers will go out of it ; if overpaid, they will flock in ; 
but the average thus produced can never equalize the conditions of 
particular trades and individuals. 

In any one country, the standard of wages seems to be set by the 
standard of life in that country and the opportunities of migration. 
No man can work for " starvation wages," and one man or people 
will starve where another will live. As long, in our own country, as 
a man can get a farm at the West which will give him " a good 
living," he will not long, under the facilities of movement offered to 
him at all hands, take less than " a good living " in his trade at the 
East. The ryot in British India, who can live on rice and cannot 
easily migrate, gets almost nothing. 

The English economists, up to a recent date, held to the contrary 
doctrine of the Wage-fund, viz., that wages cannot be greater at any 
given time than a fixed though indeterminate portion of the existing 
capital, available to pay labor, — therefore the more workers the 
less the wages of each. One worker's gain by getting above average 
wages would thus necessitate another's getting below average wages. 
This was in contradistinction to the other principles of Economics 
and to the facts of progress, and it proves not to be true. Almost no 
labor, with such exceptions as a lawyer's retainer, is paid in advance ; 
payments are at the end of the day, the week or " the job," not at 



36 OF WORK AND WEALTH. 

the beginning,, and during this time the increased value paid for by 
wages has already been added. The error arose from a confusion of 
wealth with money. The hirer may not have realized the added 
wealth into money, though he can usually do so if he wishes, even 
on half-finished products. He commonly, however, pays wages in 
money instead of in the actual product, preferring to use or borrow 
capital and to hold the product for a higher price. But the greater the 
product of the day or the week, the more wealth he has, the more 
money he can get, the more wages he can pay. It is true that a man 
must first eat his breakfast before he can do his day's work, must 
have tools or machinery or a fit building to do his work well, but in 
no sense is the capital so employed distributed to him as wages. 
Each man begins on what has been previously stored, as in infancy 
he lives upon his mother's milk, but this has no relation whatever to 
the payments made to him for work done. 

The bearing of this fact, that wages increase with product, is very im- 
portant. The antagonism of labor and capital, the prejudice against 
labor-saving machinery, the trades -union opposition to the increase 
of production and to the encouragement of efficiency, strikes, the lim- 
itation of apprentices, are all associated with the contrary and un- 
true doctrine. It is to the interest of each man who earns wages to 
have the full benefit of capital and of labor-saving machinery, to 
have as many people as possible at work, all working as well as they 
can, to have that work kept up the year through. This increases the 
total product ; there is more for each man as wages, each man can 
have more leisure because he can earn as much in less time, and the 
temporary disadvantage that undoubtedly comes to each man who, 
by the introduction of a new machine, is forced to change his work, 
is more than balanced even to him in the long run. It is found that 
even successful strikes do not often pay, because a strike that lasts 
one month requires a raise of ten per cent through the rest of the 
year to overcome the loss of wages, which are apt to be lowered 
again before the year is up, while this is but a small part of the loss 
to the community by the stoppage of production. When strikes are 



OF WORK AND WEALTH. 37 

unsuccessful, as most strikes have been, the loss is all the greater 
upon the workingmen. The fact that supply and demand regulate 
wages with little regard to trades-union restrictions, is illustrated by 
the rise of the wages of domestic servants, who have no unions, but 
who have profited the most fully of any laboring class by increased 
demand. 

The increase of productiveness is, in fact, the only way in which 
wages, in general, can be raised. Many wage-earners at one time 
looked to " cheap money," i. e., plenty of greenbacks, to do this. 
But as wages went up, in greenbacks, this substitute-money went 
down and prices went up, so that the wage-earner could buy no 
more, in fact less, than before. Others still think that by limiting 
the number of men coming into a trade, or the number of hours they 
work, or the speed at which they work, wages can be raised. What 
this really means is that by lessening work, you can produce scarcity 
or monopoly- value. If you can have only a hundred hats made when 
two hundred are wanted, the hatters, for the time, can get a higher 
price. But this can be arranged only in small skilled trades for a 
very little time, and even then the community — that is, laboring men 
in general — must suffer. Many laborers also will be thus kept idle, 
and the workers must pay through taxes for their maintenance as 
paupers, as they pay the board of convicts when these are not made 
to work. Always it is true that employers cannot pay workmen for 
more than the work they do, cannot pay ten hours' wages for eight 
hours' work. If they did, they would fail. It is when all workmen 
work hard, with the best advantages of machinery, that there is more 
product to divide, higher wages and cheaper prices, and the two 
hours' leisure can be gained because so much more work is done in 
eight hours. 

The laborer, however, complains that in these modern days, with 
all sorts of labor-saving machinery, he neither is better paid nor can 
live better nor can take leisure ; while the rich are getting richer, 
the poor are getting poorer. This is partly true and partly not true. 
Absolutely, the laborer is better off than a generation or a century 
ago : the facts show that he is better paid, better housed, clothed and 



38 OF WORK AND WEALTH. 

fed, even at the worst, and works fewer hours. But with this ad- 
vance, his desires have increased in even greater proportion ; he sees 
the luxury of the rich and feels, relatively, worse off than he ought to 
be. Labor, in fact, has not profited by civilization as it should 
have done. The reason is found chiefly in false economic systems 
and bad legislation. While legislation cannot increase product, 
but can only divert work from one channel to another, it can 
decrease productivity : it is easier to break down than to build up, 
as a fire destroys in an hour the work of years. The exorbitant 
fortunes of recent years have come chiefly from two sources, the 
unearned increment of land " held for the rise," and gambling in 
corporate franchises granted by the people, while the poor have been 
made poorer by a vicious tax system which, in its round about and con- 
cealed way, took from the poor man much more in proportion than 
from the rich. By arbitration and mutual conciliation, for which the 
power and public opinion of trades-unions are most useful, instead of 
strikes, and by careful choice of honest and wise legislators instead 
of riots, labor will come to its own and get in distribution its fair 
share of the wealth it has helped to produce. 



Vlt.— OF CAPITAL AND BRAINS. 

Capital, unlike land and labor, is not absolutely necessary to the 
production of wealth ; but because, in the higher industrial organi- 
zation, it enables labor to work at the best advantage, it becomes 
relatively the most important factor in production. Capital is that 
part of wealth, i. <?., of stored labor, used to produce wealth. As we 
spoke of potential wealth, so we may speak of potential capital, the 
reserve which can be, but is not now being used to produce wealth. 
Capital is not merely money, but wealth, commonly represented in 
terms of money; it is paid for by Interest, which pays not for the use 
of money, but for the use of those things which money buys. These 
things are in general : subsistence (including food, clothing, dwelling, 
fuel) ; tools (which may be a hand-tool, or a steam engine, or a fac- 
tory) \ material. A man first uses his savings to make sure of to- 
morrow's food ; next for dress ; next for a place to live in ; these 
secured, he gets tools so as to work advantageously ; last, he buys 
materials on which to use them. Economists endeavor to draw a line 
between fixed capital, used for a long time over and over again, as a 
house, mechanical " plant" or the road-bed of a railway, and circulat- 
ing capital, which like food, fuel and material, is commonly used but 
once, and is destroyed in using. To invest capital is to exchange 
circulating into fixed capital, and as a country is more civilized, the 
proportion of fixed capital increases. There is in fact no strict line, 
for many things are destroyed by or wear out after a few usings, as a 
file, and are between the two. So, also, it is not possible to draw a 
strict line between wealth used as capital or not used as capital: 
a man's breakfast may or may not be turned into a day's work. 

The rate of interest, usually stated as so much per cent (that is, so 
many dollars for the use of a hundred) per year, depends upon the 
need or demand for the things that capital will buy. This again is the 
law of supply and demand. Interest is high in new countries, chiefly 
because labor can be used to great advantage if food and tools and 
materials, some or all, can be had ; for the use of these, therefore, a 



40 OF WORK AND WEALTH. 

high charge can be paid. On the other hand, in new countries, no- 
body has had time to save ; capital is scarce, and must be brought 
from afar. A high rate of interest attracts capital, and as more capital 
flows in interest is lowered. A high rate of interest carries there- 
fore its own cure : and the folly of usury laws, which say that no one 
shall claim more than a certain rate, is best shown by the fact that 
they prevent that very flow of capital which makes interest lower. 

But the chief reason why what is usually called interest is higher 
in one place than another, and especially in new countries, is that 
" capital is timid," and, to induce it to take risks, a large item of 
insurance must be added to true interest. Were it not for this, the 
rate of interest the world over would be much nearer an aver- 
age rate than wages can be, because circulating capital is more 
easily transported than labor. But the " unwillingness of capital to 
emigrate," to risk itself in strange countries, is so great that some 
economists estimate it at two ner cent, which means that two per 
cent must be added to the rate of interest at home before capitalists 
will lend money in foreign countries. 

As it is, the increasing wealth of the world at disposal as capital, 
with the increase of productive power and savings, and the greater 
security of property in nearly all countries, are working together to 
lower the rate of so-called interest the world over, and to bring it 
nearer to proper and normal interest by eliminating the element of 
insurance. In old days 12 per cent was a common rate of interest 
at the West : this has fallen to 6 or less, and both United States and 
British government bonds (consols) are now issued at 3 per cent. 
As the world progresses, wages, the relative share of labor, are rising, 
and interest, the relative share of capital, is falling : and it is not 
progress, but mistaken legislation, that acts against the poor. 

Capital being thus in its origin labor stored, and in its use only a 
means of maintaining or facilitating labor, many economists count 
but two factors in production, land and labor ; others are beginning 
to recognize not only land, labor and capital, but a fourth factor, the 



OF WORK AND WEALTH. 41 

Direction of labor, or Brains. The share of the Director, who uses 
his brains, comes last in distribution, and is properly called Profit. 

This fourth sharer in distribution was discussed by Adam Smith, 
in the Scotch phrase, as the undertaker; and modern Economics has 
borrowed the French word entrepreneur ox enterprise-man, a word used 
by the economist who has written most usefully on this branch of 
the subject, Prof. F. A. Walker. The word Director more clearly 
expresses his function ; he directs how labor shall be applied, what 
shall be produced, and if his judgment is wrong instead of right, the 
consequent misdirected production (misleadingly called over-pro- 
duction, ill-distribution of production, under-consumption, — being 
really over-production of the wrong thing and under-production of 
the right thing) brings about the disasters of modern industry. He 
is thus the important person of the industrial organization — the 
leader, the master, the captain of industry, the organizing force. For 
while capital is timid, the Director is the Progressist. It is through 
him that leadership, mastery, tells in the economic world. 

It has usually been considered that this Director or entrepreneur 
is only a higher class of wage-earner, and that Profit is part of 
the return of capital. This confusion is one result of the common 
association in one person of two or more of the several elements in pro- 
duction. The shoemaker who buys leather and owns his own kit of 
tools and hires men is to that extent a capitalist and Director. But in 
the highest industrial organization, there emerges this fourth person as 
a distinct class, renting from the landowner, borrowing from the capi- 
talist, employing laborers, and himself taking the risk and reaping profit, 
if such there be. The Director may enter the service of the capitalist 
and commute this profit by accepting stated remuneration, and a cor- 
poration, an association owning land and supplying capital, will often 
assume risk and under the name of Dividends account at once for 
Rent, Interest and Profit. But this payment for direction, the 
remuneration of Brains, is almost always to be found ; and usually 
in connection with some one person. In the modern organiza- 
tion of industry, the quickness of competition, requiring alert 
personal responsibility, commonly compels such concentration of 



42 OF WORK Ah f D WEALTH. 

power as the one engineer has over the steam-engine ; and the con- 
servatism and variant opinion of a " Board" is so ill-fitted to com- 
pete that the larger the organization and the more successful its 
competition is to be, the more probable is the emergence of the one 
person, in that case often known as the Managing Director. 

Profit is, more than any other, the variable element in distribution, 
and it involves the possibility of loss. The payments of Rent and 
Interest are usually pre-stated by contract. Wages are determined 
by the condition of the labor-market ; Profit remains after these 
three payments have been deducted from Product. If Product is in- 
sufficient to cover these three payments, the Director remains respon- 
sible for the loss, unless by bankruptcy he shifts it upon one of the 
other agents in production. Whether Product exceed or fall below 
the sum of these three elements of cost, that is, whether it yields 
Profit or loss, depends upon whether this factor of Brains directs the 
labor it employs in such wise as to make product under or over the 
price obtained. Thus, like Rent, Profit is only the equivalent of labor 
saved ; like Rent, it does not enter into price, being, in fact, the dif- 
ference between cost and price, and the final analogy is that 
Brains, like land, is a gift of nature, of limited quantity (for this 
high purpose) and of varying quality. Brains not able to 
earn more than the ordinary wages of the laborer, correspond 
to the no-rent land, and are pushed out of the directing into the 
directed class, as no-rent lands are thrown out of cultivation by 
the opening up of more productive soil. It may finally be suggested 
that the tax on incomes has thus the same basis logically as a tax on 
rent or the productivity of land. These positions are, however, new 
in economics, and have not the support, as yet, of the orthodox 
economists. 

The tendency of profit is to become reduced to a minimum for the 
evident reason that other directors of industry presently take 
advantage of the improved methods, or labor-saving otherwise, in- 
troduced by any one, so that price falls to the lowered scale of cost 
(unless through combinations this saving is denied to the public, as 
is the case in the improved methods of making Bessemer steel) 



OF WORK AND WEALTH 43 

and the profit is more and more eliminated. This is so apt to be 
the case that it has been found necessary to encourage inventors by 
patent laws which give them the exclusive right to reap the benefit of 
their brain-service for a certain time. This kind of profit then be- 
comes a definite element of price, until the patent expires or until 
an equivalent invention again brings competition into play. In every 
form of industry this tendency of price to fall to the lowered scale is 
perceptible, and it is very strikingly illustrated by the driving out of 
middlemen and small dealers in favor of large houses whose superior 
facilities and business methods enable them to transact business on a 
margin insufficient to small dealers. Despite the temporary hardships 
to the middlemen, the general result is gain. 

Co-operation, in the usual sense of co-operative production, is prop- 
erly speaking, an association of Labor to secure Profits as well as 
Wages. Such a combination is quite within economic possibilities, 
but it is not within economic possibilities that the different qualities 
of labor and brains entering into the combination shall be paid at 
the same rate. The modern industrial organization demands a di- 
rectorship, usually by one authoritative person, of an ability which 
commands a considerable return of profits or an equivalent commu- 
tation of them into salary. Most associations of labor have been un- 
willing to accept this necessity of leadership or to pay for it, and 
they have consequently been unable to stem the keen competition 
which only brains can meet. That co-operation is less a combina- 
tion of Capital and Labor, as is generally considered, is shown by 
the fact that a co-operative association often begins by borrowing 
capital at the normal rate of interest. 



VIII.— THE USING OF WEALTH. 

Consumption, the final aim of production and exchange, is in one 
sense the most practical department of economics, though the least 
studied. For consumption, more than anything else, is within human 
control and direction by the varying aim and relative strength of 
motives of desire. The savage, for instance, desires great quantities 
of food, and a big fire to keep him warm : a few things, in large 
quantities, satisfy him. As civilization advances, desires increase in 
variety, and begin to dook rather to quality than to quantity. The 
civilized man eats less of any one thing, but his appetite is developed 
to desire variety of food ; and instead of great quantities of fuel to 
warm him, he dresses more warmly, builds a better house, and so 
needs less instead of more fuel. This "law of variety" of desires 
gives the key to economics. All wealth is produced only that it may 
be consumed ; human desires multiply beyond the means of satisfy- 
ing them. There cannot be too much in the total, though there may 
be more than is wanted of any one thing. 

The direction of consumption is then the great question of eco- 
nomics, for supply is controlled by demand rather than demand by sup- 
ply. Legislation which attempts to check or direct consumption, 
usually called sumptuary laws, has been many times tried, and com- 
monly proves futile. An intelligent sense of economic laws, result- 
ing in the moulding of public opinion to a higher standard of life, is 
almost the only practicable means of regulating consumption. But 
this is entirely competent to that end. There is no factor in the 
world so strong ; for it holds with the savage as with the civilized 
man, and with the pagan as with the Christian. Wise legislation 
may help, but laws against public opinion prove only a dead letter 
or a hindrance. 

Legislation in the form of taxation nevertheless has a strong in- 
direct effect in directing consumption from or into certain channels, 
and the objects and methods of taxation must always be brought to 
this economic test. The thing which is taxed, or the form of indus- 



OF WORK AND WEALTH. 45 

try which is taxed is put at a disadvantage beside that which is not 
taxed, with the result of increasing price and so decreasing demand. 
The statesman whose sole purpose is to raise revenue cannot overlook 
the fact that the method and subject of taxation greatly influences 
the everyday life of his people, especially since the cost of govern- 
ment is sometimes ten per cent of all expenses. A tax on liquor 
has been a favorite tax because it increases the cost of drinking ; on 
the other hand, it has a tendency to promote the adulteration of 
liquors and so to poison those who will drink any way. There is a 
popular cry to tax luxuries, but it is always difficult to draw the line 
between necessaries and luxuries; thus people are divided as to 
whether tea and coffee ought to be taxed or not taxed. 

Adam Smith laid down four maxims as to taxation : that each citizen 
should pay in proportion to his ability; that a tax should be definite in 
amount and not arbitrary ; that it should be collected when and as 
it can easiest be paid; that it should take as little as possible from the 
people and put as much of that as possible into the treasury. In- 
direct taxes are those which are paid not by the person who is finally 
to pay them, but by some one who can get taxes back by adding to 
price. Tariff duties and excise taxes are of this kind : they are 
taxes on consumption ; they are uncertain, uneconomical to 
collect, and bear disproportionately upon the poor. The reason 
they are still popular is that they are convenient. A tax 
on sales also adds to prices, being a tax on production, adding its 
amount at each exchange. Direct taxes are those paid " out of one's 
own pocket," as the saying is: they are often objected to because 
they are "felt," though they are more equitable, definite and eco- 
nomical. Among them are taxation on wealth, which to some extent 
discourages saving ; on income, which with an exemption approximat- 
ing average wages, is a tax on that gift of nature called brains or 
faculty ; on rent or land, which, when no-rent land (which does not 
mean unused land) is exempted, is a tax on the other gift of nature. 
Neither of these latter taxes labor or adds to price, except so far as the 
"diffusion of taxes" distributes them. This question of "the inci- 
dence of taxation " still perplexes economists, who differ widely on 



46 OF WORK AND WEALTH. 

all phases of the question, but most of them favor direct taxes.* 
There are other methods of raising money for the support of govern- 
ment, as license, poll and stamp taxes, succession taxes, the rent of 
government lands, etc., but the principles of economics are chiefly 
concerned with the great divisions outlined. 

Economists discern a natural order or scale along which men seek 
to gratify desires. Their first requisite, after air, is food, next cloth- 
ing, next housing, next the food of the mind, as books ; next orna- 
ment, later amusement, and so on. With civilization, all these 
differentiate into a great variety of wants, but the higher wants 
more and more make demands. Consumption is in general to be 
distinguished as productive or non-productive consumption, the one 
being the use of wealth as capital to produce more wealth, the other 
its use in the mere gratification of desire. Between them, however, 
there is no clear line of demarcation, but rather a border land of 
doubtful ground. Consumption also divides itself along another line, 
as destructive consumption, in which the article concerned is destroyed 
by use, as food or fuel, and what we may call conserving consump- 
tion, in which the article ministers to desire again and again, as a 
house which does not wear out for a long time ; or without any loss 
by use, as a book or a picture. 

There are two opposite fallacies of consumption, equally untrue, 
held by two classes of people. The one is consumption for the sake 
of consumption, the other abstinence from consumption or non-con- 
sumption. Many hold that an enormous expenditure of wealth, as 
in a ball, is highly commendable, because it " makes trade." They 
forget that waste is not wealth-making ; war, fire, the sinking of a 
ship, also "make trade," because by destroying existing capital they 
increase demand. The wealth thus wasted would, more wisely used, 
give work to many more people in creating more wealth. On the 
other hand, hoarding is not wealth-making ; wealth hoarded is with- 
drawn from capital without doing any one good. The truth lies be- 
tween : that man, or that nation, is best off which consumes most in 
the higher part of the scale ; keeps its consumption below its produc- 

*See Economic Tract No. IX : " Taxation," by Prof. Jas. H. Ctnfield. 



OF WORK AND WEALTH. 47 

tion, so that it accumulates wealth ; keeps productive consumption 
high in proportion to non-productive consumption; and, finally, just 
as circulating capital becomes fixed capital, " invests " its consump- 
tion conservingly rather than destructively. 

All producers are consumers, but certain classes of consumers are 
often referred to non-productive consumption — as domestic servants 
and professional men. But most human labor, unless misdirected, is 
actually productive, as a domestic servant saves the force of a person 
of greater productivity, a doctor keeps him in working order, a law- 
yer helps to make it possible to transact business with surety, a cler- 
gyman preaches morality and thus renders it easier to exchange 
justly and profitably. There nevertheless remains a certain pro- 
portion of service and of corresponding payment in most of these, 
which must truly be referred to non-productive consumption. 

The final question of consumption is whether population, which 
can increase geometrically, will not in the increased demand for food, 
outrun the supply, since food is subject to the law of diminishing 
returns. Malthus points out that the lowest order of population are 
least self-restrained and breed most freely. This problem of popu- 
lation, food and land, like that of the exhaustion of the coal beds, 
is one of the far future ; and, as other natural products like oil or 
forces like electricity and direct solar energy are beginning to help 
out coal, so many other elements temper this fear for the future. 
One of the most remarkable adaptations of nature was the in- 
crease of male births in France after the Napoleonic wars. 
The valleys are always being replenished by the disintegration of the 
hills as well as by the gifts of the rain and the air ; but as to when 
the earth becomes one level and the sun grows cold, who shall say, 
or who can profitably think ? 

With consumption, then, we have reached the conclusion of Eco- 
nomics. Throughout we have found one great motive of human ac- 
tivity, the desire to get most with least labor, making the most of the 
gifts of nature by the process of exchange, to satisfy the ever increas- 
ing variety of human wants — applying labor to land to produce wealth, 
saving that wealth as capital to make labor easier, utilizing brains to 



48 OF WORK AND WEALTH, 

the same end, and paying each its share according to the inevitable 
law of supply and demand. Throughout we have seen these laws of 
nature answering to higher laws of the human mind, which modify 
condition and desire, and determine by public opinion the direction 
of human endeavor. This public opinion is but the aggregate 01 
individual intelligences, and is in its turn directed by education and 
by the mastery of leadership. And thus the promotion of economic 
progress resolves itself into the work of political education. 



